Cameron cancelled his long-awaited Europe speech which he had been due to deliver in the Netherlands Friday after a second call to Algerian premier Abdelmalek Sellal.

Downing Street said he "emphasised the continuing need for the Algerian security forces to do everything they could to safeguard hostages".

Speaking afterwards he said: "We should be prepared for the possibility of further bad news, very difficult news, in this extremely difficult situation."

Officials would continue "working around the clock to do everything we can to keep in contact with the families, to build the fullest possible picture of the information and the intelligence".

"I will do everything I can to update people about what is a difficult and dangerous and potentially very bad situation," he added.

The militant group believed to have carried out the raid on the gas plant says it was retaliation for French military intervention against al Qaida-backed rebels in neighbouring Mali.

The drama began Wednesday morning when heavily-armed militants launched a dawn raid, killing two people and injuring six others.

They claimed to have seized 41 foreign workers including Britons, Americans, Norwegians and Japanese.

A spokesman for the militants claimed that 35 hostages and 15 rebels had been killed when Algerian helicopters strafed the site in today's operation.

The militants - reportedly led by the veteran jihadist Mokhtar Belmokhtar - threatened previously to "eliminate" the hostages if they were attacked.

The Irish government said that one of its nationals had been freed.

Father-of-two Stephen McFaul, 36, from west Belfast, made contact with his wife Angela to say he was safe and well.

Amenas Gas Field in Algeria, which is jointly operated by BP and Norway's Statoil and Algeria's Sonatrach.

His 13-year-old son Dylan choked back tears as he declared he would give the electrician a "big hug" as soon as he sees him and never let him go overseas again.

Shadow foreign secretary Douglas Alexander said: "Latest reports of the grave and tragic events unfolding on the ground in Algeria are deeply concerning.

"The priority must be the resolution of the crisis and the safety of the hostages and we offer the Government our support in their efforts to achieve this."

Foreign Office Minister Alistair Burt said: "Although details have yet to become final, I am afraid we should be under no illusion that there will be some bad and distressing news to follow from this terrorist attack.

"You will appreciate that there is a limit to what I can say at present given ongoing security issues. All our thoughts should be with those who have been caught up in this tragedy and particularly with the families who have already suffered so much distress.”

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An unidentified rescued hostage speaks to the media in a hospital Ain Amenas, Algeria, in this image taken from television Friday Jan. 18, 2013. Algerias state news service says nearly 100 out of 132 foreign hostages have been freed from a gas plant where Islamist militants had held them captive for three days. The APS news agency report was an unexpected indication of both more hostages than had previously been reported and a potentially breakthrough development in what has been a bloody siege. (AP Photo/Canal Algerie via Assiaciated Press TV) ** TV OUT ALGERIA OUT **

Unidentified rescued hostages pose for the media in Ain Amenas, Algeria, in this image taken from television Friday Jan. 18, 2013. Algerias state news service says nearly 100 out of 132 foreign hostages have been freed from a gas plant where Islamist militants had held them captive for three days. The APS news agency report was an unexpected indication of both more hostages than had previously been reported and a potentially breakthrough development in what has been a bloody siege. (AP Photo/Canal Algerie via Associated Press TV) ** TV OUT ALGERIA OUT **

Algerian special police unit officers secure the hospital in Ain Amenas, Algeria, Friday, Jan. 18, 2013, two days after the start of the terrorist attack at a gas plant. The hostage crisis in the remote desert of Algeria is not over, Britain said Friday, after an Algerian raid on the gas plant to wipe out Islamist militants and free their captives from at least 10 countries unleashed bloody chaos. (AP Photo/Anis Belghoul)

An unidentified rescued hostage receives treatment in a hospital in Ain Amenas, Algeria, in this image taken from television Friday Jan. 18, 2013. Algerias state news service says nearly 100 out of 132 foreign hostages have been freed from a gas plant where Islamist militants had held them captive for three days. The APS news agency report was an unexpected indication of both more hostages than had previously been reported and a potentially breakthrough development in what has been a bloody siege. (AP Photo/Canal Algerie via Associated Press TV) ** TV OUT ALGERIA OUT **

An unidentified rescued hostage speaks to the media in a hospital in Ain Amenas, Algeria, in this image taken from television Friday Jan. 18, 2013. Algerias state news service says nearly 100 out of 132 foreign hostages have been freed from a gas plant where Islamist militants had held them captive for three days. The APS news agency report was an unexpected indication of both more hostages than had previously been reported and a potentially breakthrough development in what has been a bloody siege. (AP Photo/Canal Algerie via Associated Press TV) ** TV OUT ALGERIA OUT **

This image from video provided by the SITE Intel Group made available Thursday Jan. 17, 2013, purports to show militant militia leader Moktar Belmoktar. Algerian officials scrambled Thursday Jan. 17, 2013 for a way to end an armed standoff deep in the Sahara desert with Islamic militants who have taken dozens of foreigners hostage, turning to tribal Algerian Tuareg leaders for talks and contemplating an international force. The group claiming responsibility  called Katibat Moulathamine or the Masked Brigade  says it has captured 41 foreigners, including seven Americans, in the surprise attack Wednesday on the Ain Amenas gas plant. Algerian Interior Minister Daho Ould Kabila said the roughly 20 well armed gunmen were from Algeria itself, operating under orders from Moktar Belmoktar, al-Qaida's strongman in the Sahara. (AP Photo/SITE Intel Group) THE ASSOCIATED PRESS HAS NO WAY OF INDEPENDENTLY VERIFYING THE CONTENT, LOCATION OR DATE OF THIS PICTURE. MANDATORY CREDIT: SITE Intel Group

This April 19, 2005 photo released by Statoil via NTB scanpix, shows the Ain Amenas gas field in Algeria, where Islamist militants raided and took hostages Wednesday Jan. 16, 2013. As Algerian army helicopters clattered overhead deep in the Sahara desert, Islamist militants hunkered down for the night in the natural gas complex they had assaulted Wednesday morning, killing two people and taking dozens of foreigners hostage in what could be the first spillover from France's intervention in Mali. (AP Photo/Kjetil Alsvik, Statoil via NTB scanpix) NORWAY OUT

This April 19, 2005 photo released by Statoil via NTB scanpix, shows the Ain Amenas gas field in Algeria, where Islamist militants raided and took hostages Wednesday Jan. 16, 2013. As Algerian army helicopters clattered overhead deep in the Sahara desert, Islamist militants hunkered down for the night in the natural gas complex they had assaulted Wednesday morning, killing two people and taking dozens of foreigners hostage in what could be the first spillover from France's intervention in Mali. (AP Photo/Kjetil Alsvik, Statoil via NTB scanpix) NORWAY OUT

JGC Corporation, or Nikki Manager of public relations Takeshi Endo, foreground, answers reporters' questions following Wednesday's attack at a natural gas complex in Algeria which involves the company's workers, at its headquarters in Yokohama, near Tokyo Thursday, Jan. 17, 2013. A militant group that claimed responsibility said 41 foreigners were being held after the assault on one of oil-rich Algeria's energy facilities. Two foreigners were killed. (AP Photo/Kyodo News) JAPAN OUT, MANDATORY CREDIT, NO LICENSING IN CHINA, HONG KONG, JAPAN, SOUTH KOREA AND FRANCE

Statoil Chief Executive Helge Lund answers questions about the situation in the gas field, jointly operated by BP, the Norwegian energy company Statoil and the Algerian state oil company Sonatrachfield along with Japanese company JGC Corp., in Ain Amenas in Algeria during a press briefing in Stavanger, Norway, Thursday, Jan. 17, 2013. In a desert standoff deep in the Sahara, the Algerian army ringed the natural gas complex where Islamist militants hunkered down with dozens of hostages Wednesday night after a rare attack that appeared to be the first violent shock wave from the French intervention in Mali. (AP Photo/NTB Scanpix, Kent Skibstad) NORWAY OUT

Statoil Chief Executive Helge Lund answers questions about the situation in the gas field, jointly operated by BP, the Norwegian energy company Statoil and the Algerian state oil company Sonatrachfield along with Japanese company JGC Corp., in Ain Amenas in Algeria during a press briefing in Stavanger, Norway, Thursday, Jan. 17, 2013. In a desert standoff deep in the Sahara, the Algerian army ringed the natural gas complex where Islamist militants hunkered down with dozens of hostages Wednesday night after a rare attack that appeared to be the first violent shock wave from the French intervention in Mali. (AP Photo/NTB Scanpix, Kent Skibstad) NORWAY OUT

Statoil spokesman Ole Anders Skauby, centre right, talks to TV reporters outside Scandic Bergen Airport hotel where a drop-in center is established for relatives of hostages involved in the situation in Algeria. Militants are holding a number of foreigners hostages in the Sahara desert in revenge for Algeria's support of French efforts to remove Islamists from control of neighboring northern Mali. (AP Photo / Hakon Mosvold Larsen / NTB scanpix) NORWAY OUT

An unidentified rescued hostage receives treatment in a hospital Ain Amenas, Algeria, in this image taken from television Friday Jan. 18, 2013. Algerias state news service says nearly 100 out of 132 foreign hostages have been freed from a gas plant where Islamist militants had held them captive for three days. The APS news agency report was an unexpected indication of both more hostages than had previously been reported and a potentially breakthrough development in what has been a bloody siege. (AP Photo/Canal Algerie via Assiaciated Press TV) ** TV OUT ALGERIA OUT **

Residents of Ain Amenas, Algeria, gather outside the hospital trying to get information concerning relatives wounded during the terrorist attack at the gas plant, Friday, Jan. 18, 2013. The hostage crisis in the remote desert of Algeria is not over, Britain said Friday, after an Algerian raid on the gas plant to wipe out Islamist militants and free their captives from at least 10 countries unleashed bloody chaos. (AP Photo/Anis Belghoul)